Retirement Planning Challenges for Women
Despite the prominence of women in the workforce for the past several decades, there still exist income disparities and modern glass ceilings. According to Brookings Institute: “large gaps remain between men and women in employment rates, the jobs they hold, the wages they earn, and their overall economic security.”1 The U.S. Department of Labor recognizes that 47% of American workers are women.2 However, up to 60% may be underpaid compared to male colleagues.1 This post will identify three factors causing income disparity for women and retirement considerations for women to overcome them.
Women are Struggling with Wage Discrimination
One of the main causes of wage discrimination is related to maternal leave, or a leave of absence to care for elderly relatives. One study, published in the American Journal of Public Health, found that approximately 273,000 women in the United States take maternity leave every month, that’s over 3 million women annually.3
Although a mother may have extensive experience to work in a chosen profession, the longer the duration of her absence, the harder it can be to find a job. Even more troubling, many women do not receive income during maternal leave.
“The Department of Labor estimates that only about 12% of private sector employees have access to paid family leave, and Zagorsky’s study showed that only 47.5% of the women who took time off in 2015 were paid for it.”4 If a woman finds herself in a situation with paid maternal leave, she may still choose to forego the opportunity, because of fear of replacement, or the possibility of a salary reduction upon return.4
Gender-Pay Gap for Women in their 20s & 30s
To make matters worse, women receive lower pay during their careers. During their 20s and 30s, when women are most likely to conceive, the following data applies to women’s salaries5:
- 20 to 24 years: $508 weekly/$26,416 annually
- 25 to 34 years: $727 weekly/$37,804 annually
- 35 to 44 years: $877 weekly/$45,604 annually
Here is the same information for male salaries:
- 20 to 24 years: $549 weekly/$28,548 annually
- 25 to 34 years: $828 weekly/$43,056 annually
- 35 to 44 years: $1,065 weekly/$55,380 annually
According to The National Institute on Retirement Security, senior women typically earn around 25% less than men. This makes poverty 80% more likely for women at age 65, and 300% more likely for women aged 75-79.6
Women Often Outlive Men
The average American male is expected to live for 76.9 years, while the average American female will live 81.6 years7. When it comes to retirement planning, this can be a big difference. Although retirement income varies greatly based on investment decisions and lifestyle, the approximately 5 additional years of life add up.
In 2016, the U.S. Bureau of Labor Statistics found that the average senior household spends $45,756 per year. For a single female retiree, that would be close to $22,878 per year and a likely need for an additional $114,390 in retirement income, to account for longer lifespans. This is before accounting for medical expenses, which are often high in the last 4 years of life.
Priorities Vary by Gender
In a 2018 study by Willis Towers Watson, it was found that women were less likely to rank saving for retirement as a top financial priority. Women are more likely to prioritize general costs, debt repayment, and housing costs.9 One reason for this difference may be related to old-fashioned division of labor, because married women without children named retirement as a priority the most often.
Retirement Planning for Women
Make Sure to Claim Social Security
While these factors make things more difficult for women, they also provide some insight into processes to plan for retirement. For instance, maternal leave can sometimes make it harder for women to obtain social security because it limits time in the workforce. However, as long as 10 years in the workforce are satisfied, an employee is entitled to their own benefits. This could be an important factor as social security helps to offset the need for larger retirement savings.
Take Advantage of Employer-Sponsored Match on Retirement Accounts
Women that take maternal leave will have fewer years to contribute to an employer-sponsored retirement account. However, that just makes an employer-sponsored match even more valuable during working years. An employer match is essentially free money, so be sure to always take advantage of this feature of retirement plans, when it’s a part of your workplace benefits.
Rollover Retirement Accounts at Old Employers
You have the option to rollover accounts into new investments. Why settle for average investments that your employer 401k may be offering, when you have the power and control to choose the best?
Lifetime Income Benefits & Healthcare Costs
Staying active and healthy could help save money on healthcare costs in your retirement years. For a longer life, as is expected for the average woman, guaranteed lifetime income benefits can also be a great option. Lifetime income benefits may even allow you some additional income towards health expenses.
Keep Your Finances in Check!
A holistic approach to investment is necessary for an effective retirement plan. Having a balanced & diversified portfolio protects you from large market shifts. Individuals have different risk aversion and needs for retirement, so there is no one-size-fits-all plan. For guidance and a comprehensive review of your retirement accounts, Call Today: (512) 638-9499.
